The question is especially relevant with stocks
that Asensio calls "medical frauds." How he became qualified to
detect such fraud is quite a mystery. By his own admission, he has never
taken a single college-level course in biology or chemistry--and has "no
particular interest" in either subject.

Asensio offers no explanation for this curious
state of affairs. He does insist, however, that the words in his reports
are his own.

Expert without Expertise

But how could a man who has never taken Biology
101 write a paragraph such as this one from an ACI report:

Hetastarch solutions can also cause a similar
disease, a reversible acquired von Willebrand-like syndrome (Factor VIII
deficiency associated with platelet aggregation abnormalities), in which both
clotting and bleeding abnormalities occur. . . Hetastarch solutions can also cause disseminated intravascular coagulation
(consumption of the clotting factors within the bloodstream) and hemolysis
(destruction of the red blood cells intravascularly).

Or reach a conclusion like this, about an investigational drug:

This entire class . . .
was long ago superceded by far more advanced nucleic acid pharmaceuticals such
as the promising antisense and triple-stranded technologies, and the
FDA-approved interferon.

Above all, if Asensio writes his own reports, why
is he unaware of what they say? Consider this paragraph, from his
initial sell recommendation on CCSI:

Bilirubin is a
metabolic by-product produced by the
breakdown of red blood cells. If the
liver does not process bilirubin correctly, concentrations can build up in
the blood and tissues. This condition is known as
jaundice.

It's a disease of the blood, I think of
the kidney or some internal organ that isn't developed yet, so the baby
gets discolored.

It was not the only question about his report that
he could not answer accurately, if at all.

Hedge Fund Helper?

Just as remarkable is the timing of Asensio's "medical fraud"
allegations. He's been publishing short-sell recommendations for eight years.
Yet, coverage on every
"medical fraud" was initiated between November 1997 and September 1998.
He hasn't detected a single medical fraud since.

This timing strongly suggests
that someone with the ability to write the reports was available for 10 months and never
replaced. It's no mystery who that might have been. Her name was
Judy Stone. She was a cancer specialist who changed careers and became a short-seller at
Quilcap, one of Asensio's clients.

We don't know how long Dr. Stone was at Quilcap--only that she died in 2000.
Undoubtedly, she had the expertise to write the initial recommendations on his
"medical frauds." There are five of them, and all focus on topics that
a cancer specialist addresses regularly. These initial sell recommendations
also follow a distinctive format that others issued
during the same time period do not. This makes it appear that
the medical reports had a single author, someone not involved with commentaries
about non-medical stocks.

Although he claimed at his deposition to be sole author of his work, Asensio
tells a somewhat different story in his book, Sold Short. Describing Judy
Stone's importance to his business, he makes this revealing statement:

Judy performed her analyses of medical claims
anonymously, as one must in her position.

Surely Asensio must realize that Wall Street analysts
routinely sign their work. Yet, for some reason, he takes exception to the practice. It makes
you wonder if he has something to hide--and whether that something includes
other anonymous analysts.

Beyond Medicine

Asensio has also targeted many technology
or telecommunications stocks. Here, too, the source of his
expertise is elusive. He has never worked in either sector. His degrees are in economics and finance. How does
he come up with comments like this one?

ISIL is the leader in selling microchip sets
used in 2.4 GHz WLAN products that comply with the first generation IEEE 802.11b
("11b’) operating standard. IEEE 802.11a ("11a") is the established operating
standard for next generation WLAN products. The IEEE 802.11a standard has
inherent advantages over 11b.

Perhaps with a little help from his clients?
A few facts about them:

• Client Quilcap is a "high-technology" fund that
also invests heavily in pharmaceuticals. West Highland
also favors these sectors and is known for investing in
telecommunications. Blue Ridge has had many investments in the drug,
technology, and telecommunications sectors as well.

• Internet stocks have been an integral part of
Quilcap's portfolio. Both the fund and an employee were contributors to the Internet Corporation for Assigned Names and
Numbers. ICANN supervises the Internet's
domain name system.

• Tony Tristani, who
worked at West Highland from 1996 to 2002, was previously a technology analyst
at Southcoast Capital. He holds degrees in electrical and chemical
engineering; has been a chip design engineer at IBM; and lists telecommunications
among his current specialties.

Asensio has targeted very few stocks outside of
the sectors favored by his clients. In fact, Diana--the "pick" that launched
his career--was targeted soon after making an acquisition that
landed it
among the Internet stocks so important to a hedge fund client. Mere coincidence, or
nothing of the kind?

Independence for Sale?

It seems clear enough that Asensio has people whispering in his ear, if not scripting his lines.
Less clear is why clients would give picks and research to him rather than publish
these on their own. Since hedge funds are prohibited from advertising, issuing such reports might be a
good way to attract investors.

Evidently, Asensio offers something even
more valuable to the bottom line. Something worth allowing him to put his name
on work that cannot possibly be his alone--and paying him to do so. We can only guess
what it might be, but the appearance of
independence seems like the best bet.

Asensio's strategy depends heavily on media coverage, and in some cases,
legal actions such as shareholder lawsuits. Neither are
likely to result from reports written by hedge fund analysts, who are seen as self-interested.
By contrast, a
seemingly independent opinion can open the floodgates--leading to sharp
declines in a stock's price. Even if
the effects are short-lived, big profits can be made in the process.

It's a clever strategy. But what ever happened to full disclosure?
Obviously, investors would view a broker's analysis differently if they knew it
was co-written by clients with a vested interest in the outcome.
Asensio's comment about Judy Stone shows that he understood this well.